Investment bankers serve institutional needs for financing and ownership transfer, while private equity allows unlisted companies to raise funds by sharing ownership with wealthy individuals. Both activities have a noticeable contribution to the economic prosperity of a nation. This post will describe the difference between investment banking and private equity.
Defining Characteristics of Investment Banking vs. Private Equity
1| What Is Investment Banking?
Investment banks offer unbiased mediation in corporate mergers and acquisitions (M&A). Investment banking services are financial support solutions that involve debt financing, underwriting, stock-bond issuance, and business deal execution.
An IB, or investment bank, develops transactional relationships with company owners and potential buyers. Therefore, it must ensure a balanced approach to buyer-owner negotiations. Besides, IB management professionals serve a multi-disciplinary client base.
So, they support businesses operating in diverse markets, except for elite boutique investment banks that focus on a handful of industries. Investment banking services provide complete consulting and execution support that encompasses corporate merger and acquisition deals valued at billions of USD.
2| What Is Private Equity Research?
Private equity (PE) means restructuring a business entity’s ownership through a financial transaction between investors known as limited partners and company owners. Private equity research firms allow businesses to pursue new growth opportunities while guiding investors in company selection.
All companies are not publicly held, which means they are not part of stock exchanges. Therefore, data gathering and strategic investment advisory services in private equity research firms differ from investment banking and equity analysis of exchange-listed corporations.
Private equity facilitates working capital enhancements to help businesses realize their territorial expansion or innovative product development programs. Additionally, private equity research firms comprise debt-based financial services.
Examples of Private Equity vs. Investment Banking
1| Private Equity Example: Blackstone
Blackstone manages 554 billion US dollars across multiple asset management services. Professional equity research firms monitor their strategic leadership, publicly accessible interviews, and news production. Blackstone had a 2.3 billion USD equity deal that allowed it to own 75% of VFS Global.
Share and Hilton Hotels are two more cases of how Blackstone leveraged its private equity research firms to succeed in future-oriented investment strategies. E.g. the leveraged buyout of Hilton Hotels used debt to meet the cost of this business acquisition deal.
2| Investment Bank Example: Goldman Sachs
Goldman Sachs, and Citigroup (Citi bank) are a few examples of global investment banks whose monetary and advisory facilities have influenced prominent business firms.
For example, an insurance group, China Pacific, wanted to raise 1.3 billion US dollars via 462 million shares. So, Goldman Sachs helped it achieve its objective in September 2012.
The following three institutions signed that deal.
- Investment Corporation – Government of Singapore,
- The central bank of Norway (i.e., Norges Bank),
- Abu Dhabi Investment Authority.
Services of Private Equity Research Firms vs. Investment Banking Solutions
1| Types of Investment Banking Services
M&A deals are strategic expansion techniques used by large corporations to absorb smaller competitors and other businesses. However, your team must handle the implications of ownership change with elegance and fairness. Both parties in a merger and acquisition deal must understand their gains and stakes before finalizing the deal.
So, investment banks help businesses with robust deal sourcing and feasibility analysis. They observe what the company needs and how new buyers want to proceed. Moreover, investment banking services also provide stock marketing, networking, and investor outreach facilities.
IPO stands for initial public offering, and investment banks organize a company’s IPO. Investment banking professionals also perform the duties of underwriting new debt securities and helping businesses sell them.
2| How Private Equity Research Firms Help Businesses
Venture capital (VC) is a variation of scalable private equity concerned with startups and similar businesses that are yet in their developmental stage. Therefore, VC-related financial services often have a high-risk assessment. Still, venture capital generates immense growth if the startup achieves commercial success.
Mezzanine capital assistance helps organizations increase debt financing above the typical lender capital by allowing a better return on investment (ROI) rate. Also, secondary investments benefit from existing private equity portfolios maintained by institutional investors.
Private equity research firms evaluate which financial instruments can help a company get more funds efficiently. PE professionals are often responsible for protecting the interests of corporate leadership and wealthy investor entities.
We have compared private equity vs. investment banking by exploring their financial services and scope of work. IBs are suitable for institutional investors like multinational corporations and governments.
PE services are beneficial to unlisted companies and equity investors. Both categories of fundraisers facilitate debt instruments, although at different scales. You require carefully modified investment strategies to succeed in M&A deals via investment banks. Besides, private equity investments demand professional insights to calculate risks.
A leading firm in investment banking services, SG Analytics, supports institutional investors through data-driven strategies for buyer-owner negotiations. Contact us today if you want excellent analytical support in equities, venture capital, and banking operations.